Taiwan dollar surges past the 30 mark! Will the US dollar continue to rise? A comprehensive analysis of the 2025 exchange rate trend

Just a Few Days, the TWD Surged 10%, Market Sentiment Fluctuates Dramatically

Recently, the New Taiwan Dollar (TWD) has experienced an astonishing rally amid US trade policy impacts, drawing widespread market attention. In just two trading days in early May, the TWD appreciated nearly 10%, rapidly rising from above 32 to the 29 level, setting a 40-year record for the largest single-day gain. This exchange rate movement not only created the third-largest trading volume in foreign exchange market history but also prompted investors to consider: Will the TWD continue to appreciate? Will the US dollar remain weak?

It’s important to note that just a month ago, the market was worried that the TWD might depreciate to 34 or even 35 against the US dollar. Now, the situation has completely reversed. What economic logic underlies this dramatic turnaround?

Three Drivers Behind the TWD Appreciation

Tariff Policies as the Trigger

The announcement of the Trump administration’s reciprocal tariff policies ignited this wave of exchange rate volatility. After the delay of 90 days in implementing tariffs was announced, two market expectations emerged: first, global companies would focus on sourcing Taiwanese goods to avoid tariffs, benefiting Taiwan’s exports; second, the International Monetary Fund (IMF) unexpectedly upgraded Taiwan’s economic growth, coupled with strong performance in the Taiwan stock market. These positive news drove a large influx of foreign capital into Taiwan, serving as the initial momentum for the TWD’s appreciation.

Limited Policy Space for the Central Bank

Taiwan’s central bank faces a difficult dilemma. The Trump administration’s “Fair and Reciprocal Trade Policy” explicitly emphasizes “currency intervention” as a key review point, meaning that if the central bank intervenes forcefully in the forex market as in the past, it might attract US scrutiny. Considering Taiwan’s trade surplus with the US surged 134% to USD 22.09 billion in the first quarter, the pressure for TWD appreciation is indeed substantial. Under this context, the central bank’s actions are constrained, further fueling the appreciation trend.

Financial Institutions’ Focused Hedging Operations

UBS research indicates that the exchange rate movements in early May have exceeded what traditional economic indicators can explain. Large-scale hedging operations by Taiwanese insurers and exporters, along with concentrated closing of TWD financing arbitrage trades, amplified the volatility. The insurance sector holds up to USD 1.7 trillion in overseas assets (mainly US Treasuries) but has long lacked sufficient hedging measures. Historically, the central bank could effectively suppress TWD appreciation, but now policy space is limited. These institutions are forced to accelerate hedging, creating a self-reinforcing appreciation cycle.

Future US Dollar Trends: Is There Still Room to Rise?

The 28 Yuan Barrier Difficult to Break

Although the market expects continued pressure from the Trump administration to push the TWD higher, industry consensus suggests that the likelihood of the TWD reaching 28 per USD is very low. The appreciation potential is already quite limited.

How to Read Exchange Rate Valuation Indicators

A key tool for assessing whether an exchange rate is reasonable is the Real Effective Exchange Rate (REER) index compiled by the Bank for International Settlements (BIS). A value of 100 indicates fair valuation; above 100 suggests overvaluation, below 100 indicates undervaluation.

As of the end of March:

• US Dollar Index: approximately 113 → clearly overvalued
• TWD Index: approximately 96 → relatively fair or slightly undervalued
• Yen Index: only 73 → generally undervalued among Asian export countries

Compared to these, the TWD has appreciated but its valuation still does not fully reflect its fundamental level.

( Comparing Horizontally for Consistency in Appreciation

If we extend the observation period from recent abnormal fluctuations to since the beginning of the year, we find that the TWD’s appreciation aligns closely with other major Asian currencies:

• TWD appreciation: 8.74%
• Yen appreciation: 8.47%
• Korean Won appreciation: 7.17%

This indicates that although the TWD is volatile, its overall regional trend in appreciation is not abnormal.

) UBS Forecast: The Upward Trend Is Not Over

UBS’s latest report suggests that despite the recent rapid gains, the TWD’s appreciation is expected to continue across multiple dimensions:

• Valuation models show the TWD has shifted from moderate undervaluation to about 2.7 standard deviations above fair value
• The foreign exchange derivatives market shows the strongest bullish outlook in five years
• Historical experience indicates that large single-day increases are rarely immediately reversed

UBS advises investors not to prematurely reverse positions but expects that when the trade-weighted index of the TWD rises another 3% (approaching the central bank’s tolerance limit), authorities may increase intervention to stabilize the exchange rate.

A Review of the US Dollar’s Movement Over the Past Decade: Understanding Long-Term Cycles

To understand the current exchange rate trend, it’s necessary to review the past decade’s historical context.

From 2014 to 2024, USD/NTD fluctuated between 27 and 34, with a volatility of about 23%, relatively small compared to other currencies globally. In contrast, the USD/JPY volatility reached 50% (from 99 to 161), more than twice that of the TWD.

The fundamental driver of the TWD’s rise and fall is actually the US Federal Reserve’s policy. Between 2015 and 2018, as the Fed slowed rate hikes and resumed easing, the TWD strengthened to 27. After 2018, with US rate hikes, and during the 2020 pandemic, the Fed’s balance sheet ballooned from USD 4.5 trillion to USD 9 trillion, leading to USD depreciation and TWD appreciation. Post-2022, US inflation spiraled out of control, prompting the Fed to aggressively hike rates, causing the USD to surge again. It was only after the Fed started cutting rates in September 2024 that the exchange rate showed some retreat.

From this long-term perspective, the psychological threshold of 30 Yuan is the most significant reference point for the TWD. Historical experience shows that when USD/NTD is below 30, most investors are willing to buy; above 32, they tend to sell.

How to Find Opportunities Amid Exchange Rate Fluctuations

( Advanced Traders’ Short-Term Strategies

Experienced forex traders can directly operate USD/TWD on forex platforms to capture short-term movements over days or even single days. If holding USD assets, derivatives like forward contracts can lock in appreciation gains.

) Conservative Entry for Beginners

New investors should remember a few principles:

• Start small. Never rush to add large amounts. Overcommitting can lead to emotional stress and poor decisions. Many platforms like Mitrade offer small-scale short-term trading options, ideal for practice.
• Set clear stop-loss points. Protecting your principal is paramount, regardless of strategy. Using low leverage for USD/TWD is safer.
• Use demo accounts to test strategies. Most legitimate forex platforms offer free demo accounts. Practice in virtual environments to verify your trading logic before risking real money.

Long-Term Asset Allocation Considerations

From a long-term investment perspective, it’s recommended that TWD holdings comprise no more than 5%-10% of total assets. The rest should be diversified into other global assets to reduce risk. Taiwan’s economic fundamentals are solid, with a booming semiconductor export sector, and the probability of the TWD oscillating between 30 and 30.5 is higher, indicating a relatively strong long-term trend. However, closely monitor central bank moves and US-Taiwan trade developments, as these will directly influence the exchange rate trajectory.

Pairing investments in Taiwanese stocks or bonds can help maintain overall portfolio risk within manageable levels, even amid exchange rate volatility.

Key Indicators to Watch

To grasp the future trend of TWD and USD, investors should focus on:

1. Federal Reserve policy direction – the primary factor determining USD strength
2. Taiwan’s central bank’s forex intervention actions – crucial for TWD appreciation potential
3. US-Taiwan trade negotiations progress – directly affecting market expectations
4. Global risk sentiment – influencing capital flows

Overall, whether the USD will continue to rise in 2025 depends on whether the Fed maintains rate cuts and the global economic outlook. While the TWD’s short-term upward trend may face intervention risks, from a medium- to long-term valuation perspective, there remains room for gradual appreciation. Investors should stay rational, tailor strategies to their risk tolerance, and avoid herd behavior.